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Pretty good article. For the record, this centralised counterparty model is exactly how other derivatives exchanges such as the CME work. This requires careful
by moomin 3y ago
Pretty good article. For the record, this centralised counterparty model is exactly how other derivatives exchanges such as the CME work. This requires careful risk management but is generally regarded as best practice by regulators. It fails horribly if the CCP is financially unstable, of course.
My impression is that Enron Online was a real, successful, innovative business. And then the parent company went bust and ICE grabbed all the liquidity almost overnight.
- dmurray 3y agoThe CCP stuff is well understood. The reason this market didn't work is not because Enron was financially shady - per TFA, respectable exchanges have tried something similar with the same lack of success. The reason that it doesn't work is exactly what TFA says: it was hard to commoditize the product. Imagine trading pork belly futures but the typical pig doubled in size every six months.
- twic 3y ago> Imagine trading pork belly futures but the typical pig doubled in size every six months. My gut feeling is that a lot of traders would relish the excitement of that.
- dmurray 3y agoRight, and Enron would probably have enjoyed it, and that's why they dreamt it up. But a market can't survive on traders. It needs real buyers and sellers who aren't looking to capture inefficiencies in the market but to smooth out uncertainties in their cashflow. Dell, Apple, Samsung, TI, etc. They would find it didn't offer them a good hedge.
- SOVIETIC-BOSS88 3y agoJohn Arnold commented in an interview a couple years ago that Enron Online was a massive success. Even equity holders in ICE preferred trading there due lack of liq.